Janet Yellen on the Danger of a “Banana Republic” Economy

In conservative economics, cuts to social services are often seen as necessary to shrink the expanding deficit. Donald Trump’s budget bill is something altogether different: it cuts Medicaid while slashing tax rates for the wealthiest Americans, adding $6 trillion to the national debt, according to the Cato Institute. Janet Yellen, a former Treasury Secretary and former chair of the Federal Reserve, sees severe impacts in store for average Americans: “What this is going to do is to raise interest rates even more. And so housing will become less affordable, car loans less affordable,” she tells David Remnick. “This bill also contains changes that raise the burdens of anyone who has already taken on student debt. And with higher interest rates, further education—college [and] professional school—becomes less affordable. It may also curtail investment spending, which has a negative impact on growth.” This, she believes, is why the President is desperate to lower interest rates; he has spoken of firing his appointed chair of the Federal Reserve, Jerome Powell, whom he has called a “numbskull” and a “stupid person,” and installing a more compliant chair. But lowering interest rates to further political goals, Yellen says, “are the words one expects from the head of a banana republic that is about to start printing money to fund fiscal deficits. … And then you get very high inflation or hyperinflation.”

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